One of the great struggles for many franchise organizations is determining the best method of rolling out their business model. Many consider Master Licensing or Regional Franchise Development.
What I can tell you is that it is not for everyone. If the statistics are a guide then it’s for a very few. Currently only 3-5% of all franchisors use this method to grow their systems. If that is true then perhaps 15% of all franchises should consider it.
Why might this be true. As much as anything this would be true because a method of business relationship has already been established with the franchisee and other stakeholders in the particular business model. Creating new structures in existing franchises is a lot like changing chassis on a moving car.
If the concept is fresh enough, the significant business partners are available in the general marketplace then the right franchise concept, with strong individual unit economics might possibly be capable of embracing it.
What is Regional Franchise Development or Master Licensing and how is it different than a traditional franchise model? At it's roots there isn't a lot different. However, should the Franchisor share the Franchise Fees, Royalties and sometimes Distribution income with a Strategic Market Development Stakeholder for effort and consideration (sort of sweat equity on steroids) then you have the makings of a potentially rewarding business building opportunity - both for the Franchiser and for the Regional Developer (RD).
Let's start with WHY a Franchiser would decide to develop their brand through RD's and what expectation should they create in terms of growth and operational development.
I want to start out with four reasons for a franchise system to evaluate the RD method as a Growth Strategy. They are:
1) Faster Growth - If properly marketed by the right RD - more sales efforts in each Region.
2) Distributed Cost of Operations Provides a profit motive for franchise company and RD.
3) Strong operational experience in the market at the point of entry. This alleviates a franchisee's concerns about lack of understanding of a specific market.
4) Local support creates the conditions for greater franchisee satisfaction and ergo better performance.
The RD is incented to develop their Region rapidly; this creates urgency on franchise recruiting efforts. Using Business Brokers, Franchise Consultants, Local Networking, Online Portals, Classic Advertising, Social Media (I won’t even get started on THAT here), etc. at the "my territory" level enhances interest, provides a higher level of interaction to better evaluate a candidates qualifications and more rapidly move them through an investigation/buying process. In a Master or Regional Development the RD is required to open a showcase unit. Once this “Pilot Unit” is open regionally, potential candidates (many who are simply customers of the unit) become franchisees themselves after experiencing the concept as a consumer.
I am sure you can imagine the reduced growth curve for the franchisor as the RD's begin to recruit in their local market - face-to-face, filtering out the unqualified and presenting the ones who are properly vetted to the franchisor for approval. Now, I overstep my boundaries here but if I were an RD I would look for "zees" with whom I feel I can work well together, who will be a TEAM PLAYER in the market with the other franchisees, and with franchise members that will be receptive to coaching and mentoring that I provide.
Should the business model have enough margin pad in the product/service purchase you can see in an RD model the Franchisor’s costs be to hire, train, house, and compensate franchise support and sales would be greatly reduced. Franchise organizations that “do the math” understand this advantage. Executed properly it can result in strong, controlled, and calculated growth.
Come on! Who doesn’t want that?
One VERY SUCCESSFUL franchise concept that rolled out exclusively through Regional Development has over 540 units open (800+ awarded) across the USA and is supported by a staff of only 40 at corporate HQ. Those staff members support the RDs and the RDs support the franchisees in their local markets. It’s a tiered distribution of training and support. Remember, the RDs are compensated for this with the sharing of the Royalties paid by the franchisees. They make their living as a management consulting firm.
Having said all of that, Master Licensing still needs to be done correctly. This means having sufficient staff to support initial RD location openings and creating a higher level of sophisticated business training to these management firms.
Incubating units and managing them close to home provides a better process to journal and archive Best Practices. Field research is more accurate and customized to best understand the nuances of the variety of market conditions. Continual improvement is delivered locally and thus the brand, its offerings and differentiators are better articulated. This pays dividends when competition is considered and particularly if you can demonstrate the benefit of local oversight versus national neglect.
You can demonstrate a significant compelling competitive advantage (“selling” feature?) of the franchise by heightening awareness of local support by a very specific hometown champion who has a vested interest in the success of the franchisees in a particular market. With the RD only a short distance away and visits more frequent than head office staffers dispatched quarterly or less frequently by the competition, you can become a service hero.
In franchising branding is built one market place at a time. Therefore branding is better grown and controlled locally or regionally and since the RD is responsible for monitoring the local co-op advertising activities in their market the positive power of the franchise market position can be more accurately communicated.
If you are a Franchiser, particularly one that is 5 years of age or less, the RD model can substantially increase your growth and decrease your failure rate and overhead expenses.
What are we looking for in a Regional Developer? What characteristics should be avoided for an RD? Is it for you? Is this the right time in your life and personal circumstances? Much of this is determined by what you already know about your business. The rest should be determined by a brain trust.
Give me a call and we can discuss your situation. I would be honored to be of service.
John is a 26-year professional in the franchise industry. He has been a franchisee, a franchise executive and an advocate/consultant to the public and to dozens of franchise companies. He is the founder and managing partner of Wilson Associates and can be reached at dr_franchise@consultant.com
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